February 14, 2007 / 6:05 AM / 12 years ago

UPDATE 2-Deutsche Boerse buys 5 pct of India's BSE

(Recasts with BSE, Deutsche Boerse, Singapore Exchange comments)

By Himangshu Watts

MUMBAI, Feb 14 (Reuters) - Germany’s Deutsche Boerse (DB1Gn.DE) is buying a 5 percent stake in the Bombay Stock Exchange Ltd. (BSE), Asia’s oldest bourse, in the latest in a wave of consolidation efforts among the world’s exchanges.

The deal, the second in an Indian exchange in just over a month, valued the BSE at $910 million, its chief executive said. “I think it is a fair value,” Rajnikant Patel told reporters.

He said the alliance would strengthen BSE, and would help both exchanges in introducing new products and in their promotional activities.

“This is a firm beginning towards bringing the global markets to India,” he said.

Deutsche Boerse said the strategic partnership was an important step in expanding its activities in India.

“We see the exchange business becoming increasingly global and this partnership is our joint effort to benefit from each other’s strengths,” Deutsche Boerse CEO Reto Francioni said in a statement.

The BSE, which analysts had valued at $1.1-1.3 billion, also said it was open to offering stakes to other exchanges as well.

The Singapore Exchange (SGXL.SI) has said it wants to buy 5 percent in BSE, and on Wednesday confirmed it was still in talks.

“We are still in dialogue with BSE. We can’t comment further,” a spokeswoman for the Singapore bourse said.

Local papers have said Nasdaq Stock Market Inc. (NDAQ.O) and the London Stock Exchange (LSE.L) are also in the running.

India caps foreign investment in its stock exchanges at 49 percent, including foreign direct investment of 26 percent and foreign portfolio investment of 23 percent.

Any one strategic investor’s stake is limited to 5 percent.

The BSE, which was established in 1875, wants to reduce the stake held by its brokers by offering 26 percent to strategic investors and a further 25 percent through an initial public offering scheduled for May.

Indian television channel CNBC-TV18, citing unnamed sources, said earlier on Wednesday the BSE would also sell a further 21 percent to private equity funds.

Analysts have said the BSE brand would attract good valuations. Its 30-stock BSE index .BSESN is the benchmark for stock trades in India, with an average daily turnover of about $967 million in December.

The NYSE Group Inc. NYX.N in January paid $115 million for 5 percent of BSE’s larger rival, the National Stock Exchange.

Private equity firm General Atlantic, SoftBank Asian Infrastructure Fund and investment bank Goldman Sachs (GS.N) also bought 5 percent each in the NSE.

The feverish interest in India’s vibrant stock exchanges is the latest in a wave of consolidation attempts among exchanges around the world as the volume of trade soars.

The London Stock Exchange is expected to seek alliances with other bourses such as Tokyo after the Nasdaq Stock Market failed to take it over in a $5.3 billion bid.

Kotak Mahindra Capital Co. Ltd was BSE’s adviser in the transaction with Deutsche Boerse. (Additional reporting by Virendra Verma, Rina Chandran and Manoj Dharra in MUMBAI and Saeed Azhar in SINGAPORE)

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